"When fascism comes to America, it will be wrapped in the flag and carrying the cross."
-- Sinclair Lewis

Monday, May 18, 2015

Simon Johnson: Warren Is Right; Fast Track Is a Threat to Dodd-Frank

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Obama’s Presidential Library as envisaged by the Chicago firm HOK. Like Star Fleet Academy, but with corporate funding (discussed here).

by Gaius Publius

Barack Obama wants TPP, the "next NAFTA" treaty, to pass, and he wants it very badly. As a result, he's been very snippy — calculatedly so, according to Matt Taibbi — with his progressive opponents, and especially with Elizabeth Warren, a strong TPP critic.

One charge Warren has made is that passing Fast Track (formally called Trade Promotion Authority, or TPA), would pose a danger to Dodd-Frank regulation of Wall Street banks:

The bank critic says her concerns pertain to a future Republican administration cutting trade deals that override provisions of the 2010 Dodd-Frank Act.

U.S. Senator Elizabeth Warren warned that granting President Barack Obama trade-negotiating authority will help Wall Street in its long campaign to roll back rules imposed on banks after the 2008 financial crisis.

“This is hardly a hypothetical possibility: We are already deep into negotiations with the European Union on a trade agreement and big banks on both sides of the Atlantic are gearing up to use that agreement to water down financial regulations,” Warren, a staunch opponent of granting the president “fast-track” trade powers, said in a speech in Washington Tuesday.

Warren, a vocal critic of banks, said her concerns pertain to a future Republican administration cutting trade deals that override provisions of the 2010 Dodd-Frank Act. While lawmakers get a vote on whether to approve agreements that presidents negotiate under fast track, Congress can’t amend or filibuster the accords.

Obama has already called Warren “wrong” on trade. But in private, administration officials fume in much more colorful terms over Warren’s attacks, calling them “baseless” and “desperate,” with “no bearing or relation to anything we are doing.” They also suggest the Massachusetts senator knows going after trade deals will only further energize the “Draft Warren” movement that desperately wants her to run for president.

Earlier this month Senator Elizabeth Warren suggested that the Trade Promotion Authority (TPA) bill currently before Congress could make it easier, in the future, to roll back Dodd-Frank financial reforms. The reaction from the Obama administration was an immediate rebuttal, including from the president himself.

On this issue, however, Senator Warren is entirely correct, and President Obama and his supporters appear to have completely misunderstood the risks of passing TPA, dubbed fast-track, in its current form[.]

The problem is not with TPP, the trans-Pacific trade agreement, it's with TPIP (also called TAFTA), the trans-Atlantic one that's next in line. If TPP passes, you'll hear nothing but "trade deals" from then till Obama leaves office for his next career, giving speeches for several hundred thousand dollars each.

How Does Fast Track Put Dodd-Frank at Risk?

The problem is that Fast Track ("TPA") hands the current president and the next one the right to negotiate trade deals in secret and then present them to Congress, both houses, for an up-or-down vote without amendments and with limited discussion. This is a game-changer, especially in the the Senate, since under Fast Track no trade deal thus presented could be filibustered.

As Johnson explains, Fast Track legislation always has an expiration date (it "sunsets"). In this instance, Fast Track, if it passes, would be good for three years and renewable for another three. It's absolutely certain that the president after Obama will have Fast Track authority as well.

Johnson:

The real impact is on the Senate side. Here TPA would commit the Senate to vote on TPP – and any future trade agreements while TPA is in effect – without allowing any potential filibuster. So the support of only 50 senators would be needed (as the vice president can break a tie) rather than 60.

I don't see a scenario in which Democrats have enough Senate votes to defeat the passage of any trade deal, in this session or the next, without the filibuster. (I'm personally not sure they'll even regain the Senate, given their abandonment of the voters on issues like TPP and their support of crypto-Republican candidates like Patrick Murphy, but I seem to be in the minority on this, at least for now.)

Fast Track Could "Fast-Track" a Dodd-Frank Repeal

Johnson explains how Dodd-Frank could be rolled back under a Fast-Tracked trade agreement. (Note the phrase "as far as we know," which I've highlighted below. Even TPP is an unknown treaty at this point, with almost 30 chapters, none of them officially released to the public.)

TTIP is still being negotiated, but the Europeans have said publicly and repeatedly – including recently – that they would like to include a great deal about financial regulation in this agreement. And important parts of the US and European financial sector lobby are egging them on.

The current Treasury Department is adamantly opposed to including such issues, precisely because it would impede the working of financial regulation in general and implementation of Dodd-Frank in particular. (For more details, see this Policy Brief that I wrote with Jeffrey J. Schott, my colleague at the Peterson Institute for International Economics.)

But the term of the TPA, as currently proposed, is six years. (To be precise, it is for three years, renewable for another three, but the terms of renewal are almost automatic. And as long as the Republicans control the House of Representatives in 2017-18, it will be renewed.)

If the next president agreed to amend Dodd-Frank as part of TTIP, he or she would include those changes in the bill that implements it, with no Congressional amendments allowed to strip out the financial changes.

The Obama administration wants to retain Dodd-Frank legislation, or so it says. Nevertheless, the ability to overturn it by including Dodd-Frank repeal in the next trade deal, is clear. Anti–Dodd-Frank legislation, introduced separately in the Senate, would be subject to filibuster. Anti–Dodd-Frank legislation included in a Fast-Tracked trade bill would not.

Why Is Obama Doing This?

I hear this question all the time, and see it in progressive discussion groups. Why is the president doing this? I think, myself, that the simple answer is best expressed by the image above. But there are many who think he's just making a "mistake."

Simon Johnson addresses that question:

Was it a mistake?

Why doesn’t the White House simply thank Senator Warren for pointing out this potential problem – and move to limit the term of TPA? The Republicans want TPP and soon; they would vote for a TPA that expires at the end of 2016.

President Obama says that he would do nothing to facilitate the rollback of Dodd-Frank. But his administration did exactly that with the repeal of Section 716 in December (Section 716 limited the ability of big banks to bet heavily on derivatives).

Senator Warren and others on Capitol Hill fought hard against that repeal, wanting to keep this sensible restriction on big banks. But at the decisive moments the White House pushed strongly in the other direction.

Has the White House made a simple and perhaps embarrassing mistake by seeking TPA that runs for six years? Or does the Obama administration know exactly what it is doing when it opens the backdoor to undermining its own signature Dodd-Frank legislation? The latter, unfortunately, seems more likely.

Delicately put.

Simon Johnson is more circumspect than I, but if he thinks it's "more likely" that Obama's administration knows "exactly what it is doing" in opening a "backdoor" to Dodd-Frank repeal, Johnson comes very close to my answer to why Obama is doing this. Obama likely believes all the "free trade" mumbo-jumbo that keeps the rich where they are, but he also knows "exactly" where his next bread is buttered, and he's making a down payment, just as Chuck Schumer, Ron Wyden and Patty Murray have done.

The difference is that Schumer, Wyden and Murray are still in the game. Obama appears to be cashing out.

The corporatist media is hard at work to ensure that Liz Warren's comments don't get widespread distribution. They have already buried Bernie Sanders now that his novelty has worn off (and that his apparent risk to current corrupt affairs is very noticable and real). Who's left? Sherrod Brown? Please.